Bets are off--casinos feel economic pinch

By Chris Reiter and Deena Beasley

NEW YORK/LOS ANGELES (Reuters) - Casinos, generally seen as recession-proof, are beginning to feel the pain of the slowing U.S. economy.

The gambling industry has expanded rapidly in recent years, as more U.S. states allowed casinos and existing gaming parlors expanded. Casino gambling revenue, the amount lost by players, doubled between 1995 and 2006 to $32 billion, according to the American Gaming Association.

But with the U.S. economy slowing, there are signs that Americans, especially those who frequent local casinos, are not in a betting mood.

"Competitive pressures in several markets do not appear likely to lessen in the near term," Oppenheimer analyst David Katz said in a report on Wednesday.

Harrah's Entertainment Inc, the world's largest casino company, and Boyd Gaming Corp (BYD.N) both posted weaker quarterly earnings on Wednesday and both described the economic environment as "challenging."

Their weaker earnings come a day after Pinnacle Entertainment (PNK.N), which operates casinos in regional U.S. markets, posted a wider fourth-quarter loss, due mainly to costs related to opening a new casino. The company said progress on other projects hinged on access to credit financing improving.

Harrah's, which operates Las Vegas Strip resorts like Caesars Palace and the Flamingo, posted a fourth-quarter loss, burdened by impairment charges and losses at its properties in Illinois and Indiana.

Gary Loveman, Harrah's chief executive, said on a conference call that results at regional casinos were "mixed," while in Las Vegas "the gaming business has held up well, but room rates are off a bit."

Boyd Gaming Corp (BYD.N), which owns and operates 17 casinos in seven states, posted a 45 percent drop in fourth-quarter profit.

Boyd, which is building a casino resort called Echelon on the Las Vegas Strip, said net income fell to $31.2 million, or 35 cents per share, from $56.3 million, or 64 cents per share, a year earlier.

Revenue fell 8.1 percent to $478.6 million, Boyd said.

Chief Executive Keith Smith said Boyd experienced "some softness or weaknesses in the business" in late November through January, but said trends improved in February and the company is "cautiously optimistic" for the current quarter.

Fourth-quarter earnings at its downtown Las Vegas properties, aimed at tourists, posted a 13.8 percent drop in profits while profits fell 13.2 percent at Boyd's casinos in the U.S. Midwest and South, as its Blue Chip casino in Michigan City, Indiana, suffered from new competition.

At the same time, profit from Borgata in Atlantic City, New Jersey, a joint venture with MGM Mirage (MGM.N), was essentially flat as it faces competition from video lottery terminals added in nearby Pennsylvania and New York.

Boyd's earnings at its casinos catering to Las Vegas locals rose 3.3 percent as the company overcame a 1.5 percent dip in revenue.